Sunday, December 1, 2013

What GDP Doesn’t Count

Unfortunately, it’s getting worse, but for good reasons. Take a look at this video:

Very little of what is described in this video would count in GDP. And yet it’s all valuable … and wouldn’t have been produced at all a few years ago.

The upshot of this is that it’s very likely that our announced growth rates for real GDP underestimate true growth.

N.B. For more ambitious students, the backstory here is the partition of the British Raj in 1947. The U.K. walked away from its administration of what it had considered one colony, but which had been a multitude of small states conquered or dominated over centuries. At the partition, the predominantly Moslem regions became Pakistan, and the predominantly Hindu regions became India. Many refugees (about 15 million !!!) were created through expulsions. In the video, the grandfather grew up a Hindu in Lahore, which was predominantly Moslem and became part of Pakistan. He fled to Delhi and didn’t see his friend for over 60 years.